Campus Dining Today 2024 Winter - 16

Profitability
When you set a retail price on a product, there are two basic ways to
measure that: gross profit margin (GPM) and " penny profit. " GPM
is calculated by taking the retail price minus the cost of the item,
divided by retail price (GPM=[R-C]/R). With a cost of $1.95 and
a GPM of 35 percent, you would need a retail price of $2.99. That
would be a penny profit of $1.04 per unit. Doing that with all your
beverages at a 35 percent GPM makes it easy to compare. The higher
the retail price, the higher the penny profit at 35 percent GPM, since
35 percent of $5.99 is greater than 35 percent of $3.99.
A margin of 35 percent is fairly common in the convenience store
(c-store) world. Some c-stores go even higher, up to 50 percent,
which is basically pricing at double the cost-sometimes only in
select categories. By contrast, in grocery categories, common
commodities like milk and eggs often have low-to-no GPM, as they
are often baselines from which shoppers compare and are therefore
kept low. My advice is to use " competition checks " to look at the
pricing of some of your competitors. That would include any c-store
within a few miles radius of your location(s)-they don't have to be
college or university sites.
Margins
Margins-the difference between the cost and retail price-can be
somewhat deceiving. You can establish a high margin and believe
that will predict your revenue, but " you can't take margins to the
bank. " Someone must buy it first, and I've seen many products
languish on shelves due to high prices. Pricing around where your
competition is will likely achieve better results. As another saying
goes, " Better to make a quick nickel than a slow dime. "
A case in point
A popular tea that comes in a 24 oz. can has a set retail price of 99
cents, while the cost is around 69 cents. That's a 30-cent profit-not
much compared to other teas. But wait a minute, this tea sells four
times the number of other teas. For us, it was more than all the other
teas combined. The sheer volume of this brand outweighs the smaller
profit. That's where movement, multiplied by penny profit, comes in.
Lower penny profit, but much greater movement, can mean higher
revenue. You just need to stock a lot more cans.
Once you have established your margins and your penny profits by
item, you can-with the miracle of Excel or a good POS system-
make a document that adds penny profit to movement and therefore
a dollar amount by category, by cooler door, or some other grouping.
This way, you can see all of your categories of beverages, what items
sell well, and which have the best penny profit, then take advantage
of those by offering more of them in the cooler.
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CAMPUS DINING TODAY | RETAIL 101

Campus Dining Today 2024 Winter

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